J P Morgan Settles WorldCom Class Action Case For $2 Billion

by Carla Johnson, Investors Offshore.com

22 March 2005

In the week that saw WorldCom's Bernie Ebbers convicted of fraud, conspiracy, and making false filings with the Securities and Exchange Commission, J P Morgan Chase & Co became the last major securities firm to settle a class-action lawsuit filed by WorldCom investors.

J P Morgan Chase agreed to settle the case for $2 billion, bringing the total paid by defendants to more than $6 billion. The largest single amount paid was $2.58 billion, by Citigroup, while Bank of America paid $460 million. Investors who participated in the case are likely to receive more than half their claimed losses.

WorldCom was valued at $180 billion at the peak of the dotcom frenzy in 1999, but filed for Chapter 11 in 2001, with $30 billion in debt. Investors attacked investment banks for inadequate due diligence when they sold $17 billion of WorldCom's bonds in 2000 and 2001.

Although Wall Street has collectively been hit for more $12 billion as a result of stock and bond trading and mutual fund scandals over the past few years - a very large sum in relation to investment banks' profits - other major cases still pending which could have a substantial impact include lawsuits related to Enron and further WorldCom litigation.

Needless to say, investment banks and securities houses have become a lot more risk-averse as a result of the damage, both because of legislation like Sarbanes-Oxley, but also through self-imposed internal disciples which enforce rigid 'Chinese walls' between banking and brokerage activities.

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